Combining Social and Financial Performance: A Paradox?

This study provides empirical evidence on the debate about the social performance of MFIs. It examines conventional wisdom regarding the trade-off between MFIs’ contribution to development and their financial sustainability. 

The study uses regression analysis to assess the combination of social and financial performance revealing trade-off areas, not only in terms of individual targeting and range of traditional services, but also synergy effects linked to social responsibility and quality of services. Conclusions include:

• Social performance and financial performance are compatible;
• Choosing the right targeting methodology is important;
• Individual targeting might be combined with a wide range and high quality services, which have a positive effect on efficiency and sustainability;
• Client retention can be improved when services meet clients’ needs;
• Creating social value through microfinance requires additional services adapted to the profile of the target market, such as non-financial services and client protection;
• Providing inclusive, appropriate services in a responsible way that benefits clients, positively impacts productivity, efficiency, and portfolio quality.